There have been several significant developments internationally in trade secret protections over recent years. This rise in prominence is potentially explained by many factors, including increased employee mobility and improvements in document storage technology that have arguably increased the risks of misappropriation of trade secrets.
Another contributing factor is ongoing uncertainty around the ability to protect computer-implemented technology with patents making the trade secret alternative more appealing than it has been in the past.
Back in 2016, we reported President Obama signing the Defend Trade Secrets Act (DTSA) into law on 11 May 2016. The DTSA provides a federal private right of action for trade secret protection creating a uniform standard for trade secret misappropriation. Existing US state laws on trade secrets are nonetheless still in place.
As a result, trade secret case filings increased 30% between 2015 and 2017, and remained steady at that increased level between 2017 and 2019 (Lex Machina 2020 Trade Secret Litigation Report).
More recently, district courts have held that liability under the DTSA can extend to extraterritorial defendants if an act in furtherance of the misappropriation of the trade secret(s) occurred in the USA. This may mean more protection is available under the DTSA than in alternative jurisdictions as long as there is some nexus to the USA.
About two weeks after the DTSA became law in the US, the European Council approved Directive 2016/943 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. Member States of the European Union had until 9 June 2018 to implement the Directive into national law.
The Directive is a minimal harmonising legislation, which means that Member States are permitted to provide for a higher level of protection for trade secrets, so long as at least the same level of protection and minimum standards for measures, procedures and remedies are ensured for trade secret holders.
Notwithstanding Brexit, the Directive was implemented into UK law on 9 June 2018. Prior to this, trade secrets in the UK were protected by the law of confidence derived from principles of equity (as is the case in Australia). Now the two systems operate in parallel.
The Anti-Unfair Competition Law of the People’s Republic of China was revised with effect from January 2018 and again in April 2019.
Under the revised law a trade secret is defined as “technical information, business operation information, and other commercial information that are not known to the public and have commercial value”, whereas prior to 2018 the definition required “economic benefits and practical value”. A third party with actual or constructive knowledge of the theft of a trade secret can now also violate the law.
The penalty for violation now ranges up to RMB 5 million (approx. AU$1 million), compared to the previous limit of RMB 0.2 million (approx. AU$40,000). Also, punitive damages are available which can be one to five times the actual loss or illegal gains.
Where to for Australia?
Although the topic was essentially overlooked in The Productivity Commission report into Australia’s Intellectual Property Arrangements in 2016, it was apparent from the report that use of secrecy or confidentiality arrangements was significant in Australian innovation-active businesses relative to more formal IP rights.
While there is currently no trade secrets legislation in Australia, there is an established cause of action for breach of confidence, which includes trade secrets, similar to that in the United Kingdom. Codification of trade secret protection in Australia could potentially streamline enforcement procedures, further legitimize what is sometimes seen as an ‘informal’ IP right and would, at least, make us consistent with many of our major trading partners. However, it seems unlikely that there will be any legislative push for codification in the medium term in the absence of some external factor, such as, for example, as part of a free trade agreement.
Getting on the front foot
In any event, the enforceability of any rights in relation to a trade secret will almost always depend on how well it has been documented and protected. A documented inventory of trade secrets, along with standard protective measures which might include access control, confidentiality agreements and/or document labelling, will help prepare your business to enforce its rights if it becomes necessary. A systematic approach to these issues can also create a culture of careful management of sensitive information in your business, and hopefully prevent any future need for enforcement.